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Don't Get Bullish on Copper Yet

The decline appears far from over.

Many traders have noted that copper (NYSEARCA:CUPM) has found some support after its downward break out of the 2011-2012 triangle formation. Some have even begun taking the position that copper is ready to rally. To those traders we advise caution, as we believe the bearish course is likely to persist for another year or longer.

It makes sense that price acknowledged support around the 2.92 level, since that is the Fibonacci 0.618 multiple of the "crash" decline of 2008. However, note how well price has behaved with regard to the declining Schiff channel shown on the monthly chart below. We expect the channel boundary to continue to provide resistance, and another test of the support level is probably due soon. Either the channel resistance or the Fibonacci support must yield, and we believe a downward break is likely. (A decisive break and close above the monthly channel would have us reassess the Elliott wave count described in this article, although it would not necessarily be a long-term bullish development.)

The long-term price target of 1.78 for the completion of big wave C also is based on a Fibonacci multiple of the 2008 decline.

Copper Futures Monthly Chart

A different Schiff channel on the weekly chart helps illuminate the wave structure. We believe price has traced the component waves [i] and [ii] of the big C-wave break out of the triangle. Now it is in the process of moving through the internal waves within [iii]. Thus, we believe price is on the verge of a powerful declining wave (iii) inside wave [iii].

The target levels shown on the weekly chart are speculative, since we don't yet know where wave (ii) actually ends. Assuming that a downturn begins soon, then the upper support levels at 2.67 and 2.52 are likely regions for the internal wave (iii) to finish, and the next lower support around 2.34 is a likely area for the larger wave [iii] to halt. After that, we would expect several months of corrective activity before an eventual move down into the 1.78 region shown on the monthly chart.

Again, it is important to see whether price stays within the channel in the near term, and an upward break above the channel would cause us to reassess the scenario described here. For the week of June 2, the channel will pass near 3.20.

Note also that Wave59's Adaptive CCI indicator is testing the zero line on the weekly chart, which often indicates the market is at a decision area. It can either reverse course and send the indicator back downward (our scenario), or it can cross over while price rallies. A daily chart with a proposed wave count can be found at our website.

Copper Futures Weekly Chart

 

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